UK wage growth rises at fastest pace in two years - interest rate rise now more likely

UK wages grew at their fastest pace in nearly two years in the three months to April, raising the likelihood that the Bank of England will raise interest rates next week.

Data from the Office for National Statistics (ONS) shows UK wages, excluding bonuses, grew by 7.2% while total pay, including bonuses, also increased by 6.5% over the same period.

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It is the fastest growth in pay since June 2021 and the highest on record outside the pandemic but the rises lag behind the current rate of inflation which remains high at 8.7%.

The Bank of England looks to wage growth when making decisions about the base rate currently at 4.5%. If rates are increased by 0.25 percentage points at the next three meetings held by the Monetary Policy Committee then interest rates will be 5.25% by the end of the year.

Meanwhile unemployment was largely unchanged at 3.8% in the three months to April but with job vacancies slumping for the eleventh consecutive period in the three months to May amid economic uncertainty and delayed decision making around hiring.  

The number of vacancies in the economy, which has been steadily declining after hitting a record last summer, fell by 79,000 to 1.05 million. 

Ben Keighley, of recruitment specialist Socially Recruited says: “Surging wage growth will make everyone sit up and take notice — especially the rate-setters at the Bank of England.

“Despite signs of cooling in the jobs market – with another drop in vacancies and a quarterly rise in unemployment – the scorching rise in average pay means an interest rate rise is nailed on next week. This will be particularly bad news for the property sector.

“Yet while some workers’ pay packets are bulging, they’ve never felt so short-changed as inflation continues to take a bigger cut.

“Declines in available roles across many sectors suggest some businesses are content to wait out this economic storm. Yet with more than a million empty positions, employers are still having to battle to snap up the best talent.”